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Why does a health savings account (HSA) offer a triple tax break?

ANSWER

An HSA offers a triple tax break because:

  • Contributions are not considered income so are free from income taxes.
  • You don't have to pay taxes on any increases in the amount of money in the HSA. If you want, you can shift money into mutual funds and other investments after your account balance reaches a certain level.
  • There is no penalty for withdrawing the funds for medical expenses.

SOURCES:

Forbes.com: "Comparing Health Savings And Flexible Spending Accounts."

Kiplinger's Personal Finance, April 2013: "FAQs About Health Savings Accounts."

Creighton.edu: "FSAs, HSAs and Limited Purpose FSAs -- What's Right For You?"

American Medical Association: "Health Savings Accounts."

Healthcare.gov: "Flexible Spending Account."

Reviewed by Sarah Goodell on February 16, 2018

SOURCES:

Forbes.com: "Comparing Health Savings And Flexible Spending Accounts."

Kiplinger's Personal Finance, April 2013: "FAQs About Health Savings Accounts."

Creighton.edu: "FSAs, HSAs and Limited Purpose FSAs -- What's Right For You?"

American Medical Association: "Health Savings Accounts."

Healthcare.gov: "Flexible Spending Account."

Reviewed by Sarah Goodell on February 16, 2018

NEXT QUESTION:

What’s a flexible spending account (FSA)?

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